53 consumer post conf 19 mar 2014

5/21/2018 53 Consumer Post Conf 19 Mar 2014

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Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL) is a full service brokerage and equities research firm and the views expressed therein are solely ofARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only withinIndia and to no countries outside India. Disclosures and analyst certifications are present in Appendix.

Anand Rathi Research India Equities

Aniruddha Joshi+9122 6626 6732

[email protected]

Manish Valecha+9122 6626 6552

[email protected]

Girish Solanki+9122 6626 6712

[email protected]

Shilpi [email protected]

Company * P C Jewellers Rupa V Mart Zodiac

Price (`) 100 216 289 196

M. Cap ($m) 289 277 84 60

Revenues 40,184 8,290 3,831 3,600

EBITDA 4,825 1,258 388 310

PAT 2,913 677 174 140

EBITDA Margin (%) 12.0 15.2 10.1 8.6

PAT Margin (%) 7.3 8.2 4.5 3.9

RoE (%) 40.8 27.6 18 5.9

RoCE (%) 42.4 27.1 22.5 7.2

Net Debt/Equity (%) (0.6) 0.8 -0.1 0.152

Source : Companies, Anand Rathi Research *FY13

Consumer

Post-Conference Note

India I Equities

19 March 2014

India Consumer story

Healthy growth momentum ahead

Anand Rathi Institutional Equities hosted In Focus The Indiaconsumption story A Re-look corporate day at Trade Tower, D-wing,10th flr., opp. Times Tower, Kamala Mills Compound, Senapati BapatRoad, Lower Parel, Mumbai 400 013. The conference showcased fourmajor companies in retail: P C Jewellers (jewellery), Rupa & Co(innerwear), V-Mart Retail (apparel retail) and Zodiac Clothing(apparel).

India retail story painted modern. In the past six years, Indias retailindustry has registered a 14% CAGR and is likely to continue growing at thesame pace in the foreseeable future (in line with nominal GDP growth).Modern trade, especially, has tremendous growth potential considering itcomprises just 6% of the overall retail market at present. Because ofconsistent investments by major retailers such as Future Retail, Shoppers Stopand Reliance Retail as well as foreign direct investment in modern trade, weexpect this segment of retail to record healthy growth rates ahead.

Lingerie, innerwear growing steadily.The innerwear and lingerie segmenthas registered a 13% CAGR over the past five years. This segment has done

well through modern trade outlets due to greater consumer involvement. Alsorealizations her have improved through the introduction of premiumproducts in modern trade. We expect that companies such as Rupa whichhave been investing insistently in brand building as well in launching premiumproducts would benefit from this trend.

Hopes intact for organised jewellery. Jewellery companies are passingthrough a difficult phase due to the import duty hike as well as import curbs.

With the improving current-account-deficit situation, we expect some reliefover the next 2-3 quarters. However, we believe that organised jewellers suchas PC Jewellers are poised to gain market share given their strong brands,distribution networks, greater exports as well as healthy balance sheets.

BSE FMCG: 6820

Sensex: 21833

Nifty: 6517

Relative price performance

FMCG

Sensex80859095

100105110115120

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Jan-14

Feb-14

Mar-14

Source: Bloomberg


2/10




[email protected]

Jewellery Retail


India I Equities

Year end 31 Mar FY09 FY10 FY11 FY12 FY13

Sales (`m) 6,227 9,848 19,771 30,419 40,184

Net profit (`m) 310 664 1,452 2,313 2,913

EPS (`) 14 17 33 17 16

Growth (%) 138.8 18.2 96.7 (46.9) (5.8)

PE (x) 7.2 6.0 3.1 5.8 6.1

PBV (x) 3.0 2.3 1.5 2.4 2.1

RoE (%) 55.0 53.0 60.4 53.9 40.8

RoCE (%) 25.7 35.4 55.0 41.2 42.4

Dividend yield (%) - - - - 1.0

Net gearing (%) 263.3 23.9 39.9 90.0 (56.3)

Source: Company, Anand Rathi Research

`

Key data PCJL IN / PCJE.BO

52-week high / low `128 / `66

Sensex / Nifty 21833 / 6517

3-m average volume US$1m

Market cap `17.9/bn / US$289m

Shares outstanding 179m

Shareholding pattern (%) Dec 13 Sep 13 Jun 13

Promoters 70.0 70.0 70.0

- of which, Pledged - - -

Free Float 30 30 30

- Foreign Institutions 13.6 14.0 12.9

- Domestic Institutions 3.0 3.0 3.5

- Public 13.5 12.9 13.6

19 March 2014

PC Jewellers

Key highlights

Established position. A leading jewellery company in India, PC Jewellersmanufactures, retails and exports a wide range of jewelled products includingin gold, diamond and other jewels, as well as silver articles, though chieflyfocusing on diamond jewellery and jewellery for weddings.

Sound business model. Domestic sales comprised 74% of its sales in FY13,exports 26%. In domestic sales, 74% was of gold jewellery, 25.5% diamondand 0.5% others. Further, the company is in a sweet spot with respect to thenew RBI 80:20 scheme, as ~26% of its revenues arises from exports.

Broadening retail footprint.The jeweller is among the fastest-growing andmost-profitable jewellery retailers in India, with 41 showrooms across 28cities in 10 states. It has a strong reputation and brand recall in northern andcentral India. Not a single store has closed till now. High street locations,location visibility and strong customer traffic are key factors in theshowroom-selection process. It has various large format stores in north andcentral India chiefly in high street areas. It is focused on tier I/II markets

where unorganised jewellers still command the major market share.

Professional management. Promoters Balram Garg and Padam ChandGupta have over two decades of experience in the business of jewellery. Theyare further supported by a professional management team consisting of

various divisional and functional heads, including COO and CFO.

Improved performance. In FY10-13, PC Jewellers registered CAGRs of55% in revenue and 64% in PAT. The gross margin in diamond jewellery (30-35%) is significantly higher against that in gold (9-10%).


PCJL

Sensex

60708090

100110120130140

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Jan-14

Feb-14

Mar-14

Source: Bloomberg

Sensex: 21833

Nifty: 6517

Share Price: `100


3/10

19 March 2014 PC Jeweller Key highlights

Anand Rathi Research 3

Quick Glance Financials and Valuations

Fig 1 Income statement ( m)

Year-end: Mar FY09 FY10 FY11 FY12 FY13

Net revenues 6,227 9,848 19,771 30,419 40,184

Revenue growth (%) 93.8 58.1 100.7 53.9 32.1

- Op. expenses 5,738 8,875 17,808 27,107 35,360

EBIDTA 489 974 1,963 3,312 4,825

EBITDA margins (%) 7.9 9.9 9.9 10.9 12.0

- Interest 210 367 458 772 1,275

- Depreciation 12 19 30 66 100

+ Other income 72 182 168 176 202

PBT 339 770 1,639 2,650 3,645

Income taxes 30 106 191 341 785

Extra-ordinary items - - 3 - 7

Reported net profit 310 664 1,449 2,313 2,907

Adjusted net profit 310 664 1,452 2,313 2,913

PAT growth (%) 138.8 114.3 118.7 59.3 26.0

Adj. FDEPS (`/share) 14.0 16.5 32.5 17.3 16.3

Adj. FDEPS growth (%) 138.8 18.2 96.7 (46.9) (5.8)Source: Company, Anand Rathi Research

Fig 3 Cash-flow statement (m)Year-end: Mar FY09 FY10 FY11 FY12 FY13

PAT 310 664 1,452 2,313 2,913

+Non-cash Items (19) 52 33 66 54

Cash profit 291 715 1,485 2,379 2,967

- Incr./(Decr.) in WC 1,734 (566) 2,150 5,888 (1,683)

Operating cash-flow (1,443) 1,281 (665) (3,509) 4,651

-Capex 41 178 141 275 162

Free cash-flow(1,484) 1,103 (806) (3,784) 4,488-Dividend - - - - 210

+ Equity raised 19 387 24 (9) 5,626

+ Debt raised 1,582 (1,274) 565 4,375 (3,452)

-Investments - - - 0 4,429

-Misc. items - - - - -

Net cash-flow 117 216 (217) 582 2,024

+Opening cash 74 191 408 191 772

Closing cash 191 408 191 772 2,796Source: Company, Anand Rathi Research

Fig 5 Revenue and EBITDA margins

-

5

10

15

20

25

30

35

40

45

FY09

FY10

FY11

FY12

FY13

(`bn)

7.0

8.0

9.0

10.0

11.0

12.0

13.0

Revenue EBITDA Margin (RHS)

(%)

Source: Company

Fig 2 Balance sheet ( m)

Year-end: Mar FY09 FY10 FY11 FY12 FY13

Share capital 222 402 447 1,340 1,791

Reserves & surplus 506 1,377 2,807 4,218 12,097

Net worth 727 1,778 3,029 5,558 8,706

Total debt 2,107 833 1,398 5,773 2,321

Minority interest - - - - -

Def. tax liab. (net) (40) (7) (4) (4) (50)

Capital employed 2,794 2,604 4,648 11,327 16,159

Net fixed assets 96 255 366 576 638

Investments - - - 0 4,429

- of which, Liquid

Working capital 2,507 1,941 4,091 9,979 8,295

Cash 191 408 191 772 2,796

Capital deployed 2,794 2,604 4,648 11,327 16,159

Net debt/equity (%) 2.6 0.2 0.4 0.9 (0.1)

W C turn (days) 96 82 56 84 83

Book value (`/sh) 33 44 68 41 49Source: Company, Anand Rathi Research

Fig 4 Ratio analysis @ 100Year-end: Mar FY09 FY10 FY11 FY12 FY13

P/E (x) 7.2 6.0 3.1 5.8 6.1

Cash P/E (x) 6.9 5.9 3.0 5.6 6.0

EV/EBITDA (x) 8.4 4.6 2.9 5.6 2.7

EV/Sales (x) 0.7 0.5 0.3 0.6 0.3

P/B (x) 3.0 2.3 1.5 2.4 2.1

RoAE (%) 55.0 53.0 60.4 53.9 40.8

RoACE (%) 25.7 35.4 55.0 41.2 42.4Dividend yield (%) - - - - 1.0

Dividend payout (%) - - - - 6.2

Debt/Equity (x) 2.6 0.2 0.4 0.9 (0.6)

Receivable days 95 92 78 82 61

Inventory days 120 140 102 141 156

Payable days 4 2 3 10 12

Working capital days 96 82 56 84 83

Fixed asset T/O (x) 64.6 54.0 61.9 55.9 51.5Source: Company, Anand Rathi Research

Fig 6 Return ratios

25

30

35

40

45

50

55

60

65

FY09

FY10

FY11

FY12

FY13

RoCE RoE

(%)

Source: Company


4/10




[email protected]

Shilpi [email protected]

Key financials (YE Mar) FY09 FY10 FY11 FY12 FY13

Sales (`m) 4,211 5,325 6,500 7,110 8,290

Net profit (`m) 143 252 337 436 677

EPS (`) 1.8 3.2 4.2 5.5 8.5

Growth (%) (31.7) 76.7 33.8 29.2 55.5

PE (x) 125.7 71.1 53.2 41.1 26.4

PBV (x) 13.8 11.9 10.0 8.5 6.9

RoE (%) 15.6 18.0 20.5 22.4 27.6

RoCE (%) 16.4 17.9 20.0 22.3 27.1

Dividend yield (%) 0.2 0.3 0.4 0.7 0.9

Net gearing (%) 20.2 74.4 98.6 84.4 85.0


Consumer


India I Equities

19 March 2014

Rupa & Co.

Key highlights

Premiumization driving margins up. Rupa has sharpened its focus onpremium products. As a result the proportion of revenue of its M-series (itssuper-premium brand) has expanded from 4% to 9% over FY09-13. Also,the company has increased ad-spend from 7.7% of net sales in FY09 to 9.9%in FY13, increasing its pricing power. Average realizations have registered a15% CAGR, whereas COGS per piece is just 10%. This has helped it expandits profit margin from 7.5% in FY09 to 15.2% in FY13.

Healthy distribution network. Rupas distribution network comprises110,000 retail outlets, which is five times that of most of its competitors. Asthe brand is available across India, the company stands to greatly benefit fromany increase in spending of advertising. It intends to introduce its productsinto modern trade channels, as also in south India, in FY15.

Strong range of products.The company has created strong brands in theinnerwear/lingerie arena. Its major brands are Rupa, Euro and M-series. Ithas developed a range of products (sub-segmented) under each of thesebrands, aiming at consumers across widely disparate income levels.

Steady raw material prices. Prices of cotton, the companys key raw

material, have been steady, yoy. This could help it expand its gross margin aswell as increase its brand-building and promotional activity.

Niche player in a growing segment. In the past five years the innerwearmarket overall has registered a 13% CAGR. Within this, the regulatedsegment constitutes 16%. Within the same time the proportion of premiumproducts has doubled. We believe that, considering its widespread distributionnetwork as well as its range of products, Rupa has a healthy chance of gainingmarket share in this growing but fragmented market.

Key data RUPA IN / RUPA.BO

52-week high / low `250 / `146


3-m average volume US$0.1m

Market cap `20bn / US$36M



RUPA

Sensex

150160170180190200210220230

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Jan-14

Feb-14

Mar-14

Source: Bloomberg

Shareholding pattern (%) Dec 13 Sep 13 Mar 13

Promoters 74.9 74.9 74.9


Free Float 25.1 25.1 25.1

- Foreign Institutions - - -


- Public 24.7 24.7 24.9

Sensex: 21833

Nifty: 6517

Share Price: `216


5/10

19 March 2014 Rupa & co. Key highlights



Fig 1 Income statement ( m)Year-end: Mar FY09 FY10 FY11 FY12 FY13

Net revenues 4,211 5,325 6,500 7,110 8,290

Revenue growth (%) 13.1 26.4 22.1 9.4 16.6

- Op. expenses 3,895 4,880 5,814 6,207 7,032

EBIDTA 316 445 686 903 1,258

EBITDA margin (%) 8 8 11 13 15

- Interest expenses 80 58 148 217 210


+ Other income 17 34 13 7 10

- Tax 79 133 168 196 313

Effective tax rate (%) 35.7 34.5 33.3 31.1 31.6

Reported PAT 143 252 337 436 677

+/- Extraordinary items - - - - (30)

+/- Minority interest - - - - -

Adjusted PAT 143 252 337 436 677

Adj. FDEPS (`/sh) 1.8 3.2 4.2 5.5 8.5

Adj. FDEPS growth (%) (31.7) 76.7 33.8 29.2 55.5


Fig 3 Cash-flow statement ( m)Year-end: Mar FY09 FY10 FY11 FY12 FY13

Consolidated PAT 143 252 337 436 648

+Depreciation 31 36 47 61 67

Cash profit 173 288 384 497 715

- Incr./(Decr.) in WC (54) (588) (713) (258) (705)

Operating cash-flow 143 (283) (296) 278 60

- Capex (133) (343) (290) (138) (306)

Free cash-flow 10 (625) (586) 140 (246)

- Dividend (19) (47) (60) (92) (139)

+ Equity raised 675 - - - -

+ Debt ra ised (600) 702 592 (69) 392

- Investments (50) (9) 60 - -

- Misc. items - - - - -

Net cash-flow 16 20 5 (22) 7

+ Opening cash 33 49 69 74 53

Closing cash 49 69 74 53 60Source: Company, Anand Rathi Research

Fig 5 Geographical revenue break-up (FY13)

Source: Company

Fig 2 Balance sheet ( m)Year-end: Mar FY09 FY10 FY11 FY12 FY13

Share capital 80 80 80 80 80

Reserves & surplus 1,155 1,353 1,597 1,894 2,356

Net worth 1,235 1,432 1,677 1,974 2,436

Total debt - - - - -

Minority interest 512 1,248 1,840 1,828 2,257

Def. tax liab. (net) 66 71 114 129 150


Net fixed assets 571 883 1,126 1,202 1,438

Investments 199 60 0 123 175

- of which, Liquid 199 60 0 123 175

Net working capital 993 1,739 2,430 2,554 3,169

Cash and bank balance 49 69 74 53 60


Net debt 263 1,118 1,765 1,776 2,197

WC days 23.6 32.7 37.4 35.9 38.2

Book value (`/sh) 16.3 18.9 22.5 26.4 32.5Source: Company, Anand Rathi Research


P/E (x) 125.7 71.1 53.2 41.1 26.4

P/B (x) 13.8 11.9 10.0 8.5 6.9

EV/sales (x) 4.8 3.8 3.1 2.8 2.4

EV/EBITDA (x) 63.6 45.2 29.3 22.3 16.0

RoAE (%) 15.6 18.0 20.5 22.4 27.6

RoACE (%) 16.4 17.9 20.0 22.3 27.1

Dividend yield (%) 0.2 0.3 0.4 0.7 0.9Dividend payout (%) 27.9 20.6 23.6 27.4 23.5

RM to sales (%) 56.9 55.8 53.9 52.4 49.9

Ad spend to sales (%) 7.7 8.1 8.0 9.9 9.9

EBITDA growth (%) 4.1 40.7 54.3 31.6 39.2

EPS growth (%) (31.7) 76.7 33.8 29.2 55.5

PAT margin (%) 3.4 4.7 5.2 6.1 8.2

Tax rate (%) 35.7 34.5 33.3 31.1 31.6

Staff cost to sales (%) 6.9 (248.4) (174.0) 32.2 (36.3)Source: Company, Anand Rathi Research

Fig 6 Revenue break-up (FY13)

Jon

32.4%

Frontline

25.7%

Macroman

10.2%

M' Series

8.6%

Thermocot

7.3%

Kidline

1.0%

Footline

0.9%Softline

4.3%Bumchums

4.4%

Euro Jeans

0.2%

Air

0.2%

Euro

4.9%

Source: Company


6/10




[email protected]


[email protected]

Key financials (YE Mar) FY12 FY13 FY14e FY15e FY16e

Sales (`m) 2,811 3,831 5,814 8,145 10,881

Net profit (`m) 106 174 280 457 620

EPS (`) 7.6 9.7 15.6 25.4 34.5

Growth (%) 69.4 27.1 61.0 63.4 35.7

PE (x) 38.0 29.9 18.6 11.4 8.4

PBV (x) 7.5 3.5 3.0 2.4 1.9

RoE (%) 21.8 18.0 17.5 23.5 25.2

RoCE (%) 24.6 22.5 22.9 28.3 31.7

Dividend yield (%) 0.1 0.3 0.3 0.3 0.3

Net gearing (%) 72.4 (13.9) 4.8 12.0 11.1


Consumer


India I Equities

19 March 2014

V-Mart Retail

Key highlights

On track to roll out 25 stores. By end-FY14, V-Mart Retail could have 92retailstores, including the 25 to be rolled out this year. It has maintained itsstrategy of introducing stores in tier 2 and 3 cities and focusing more on thehigh-margin apparel business.

Expanding in tier 2 and 3 cities.The company intends to continue to focuson tier 2 and tier 3 cities/towns, as competition is less intense here, and

hence, revenues and margins are higher. At present, most of its stores are innorth and east India. It has so far avoided the highly competitive south and

west India (~70% of outlets in modern trade).

Lower cost structure than most of its peers. V-Mart has a lower coststructure than most of its competitors such as Shoppers Stop and FutureRetail. As it enters into long-term leases for its retail stores, its rental costs arelower than those of its peers are held in check. Also, as it follows a cluster-based strategy in opening stores, inventory losses are low. Owing to the useof the local media, advertising and promotion costs are also lower than thoseof its peers.

Rising focus on apparel segment.Initially, the company focused on bothapparel and kirana segments. Kirana was important to drive footfalls, whereasapparels had higher profit margins. However, with rising brand consciousnessand expanding reach of V Mart, the focus is now more on the apparelsegment.

No plans of aggressive investment in private labels, supply chain. Thecompany has strategically decided not to commence manufacturing units forprivate labels (This requires not only capital, but also brand-building and raw-material-sourcing abilities.) Also, it does not plan to invest aggressively insupply chains. We believe this would result in lower capex and strong cashflows and help expand its return ratios.


VMART

Sensex

100

150

200

250

300

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Jan-14

Feb-14

Mar-14

Source: Bloomberg

Key data VMART IN / VMART.BO

52-week high / low `300 / `104



Market cap `5bn / US$87m


Shareholding pattern (%) Dec13 Sep13 Jun13

Promoters 58.8 58.8 58.8


Free Float 41.2 41.2 41.2



- Public 18.5 19.3 25.7

Rating: Buy

Target Price: `285

Share Price: `289


7/10

19 March 2014 V-Mart Retail Key highlights



Fig 1 Income statement ( m)Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Net revenues 2,811 3,831 5,814 8,145 10,881

Revenue growth (%) 31.3 36.3 51.8 40.1 33.6

- Op. expenses 2,536 3,443 5,264 7,349 9,796

EBIDTA 275 388 550 796 1,085

EBITDA margin (%) 9.8 10.1 9.5 9.8 10.0

- Interest expenses 67 57 43 45 48

- Depreciation 58 76 102 139 178

+ Other income 8 6 6 60 53

- Tax 51 86 132 215 292


Reported PAT 106 180 280 457 620

+/- Extraordinary items - 6 - - -

+/- Minority interest - - - - -

Adjusted PAT 106 174 280 457 620

Adj. FDEPS (`/sh) 7.6 9.7 15.6 25.4 34.5

Adj. FDEPS growth (%) 69.4 27.1 61.0 63.4 35.7


Fig 3 Cash-flow statement ( m)Year-end: Mar FY12 FY13 FY14e FY15e FY16e


+Depreciation 58 76 102 139 178

Cash profit 164 256 382 596 798

- Incr./(Decr.) in WC (58) (234) (334) (400) (472)

Operating cash-flow 113 57 47 196 326

- Capex (136) (222) (313) (351) (351)

Free cash-flow (23) (164) (266) (155) (25)

- Dividend (3) (3) (21) (21) (21)

+ Equity raised - 770 - - -

+ Debt raised 25 (57) - 25 25

- Investments (2) (402) 200 150 -

- Misc. items - - - - -

Net cash-f low (4) 143 (87) (1) (21)

+ Opening cash 15 11 158 71 70


Fig 5 Return ratios

-

5

10

15

20

25

FY09

FY10

FY11

FY12

FY13

(%)

RoE RoCE

Source: Bloomberg, Anand Rathi Research

Fig 2 Balance sheet ( m)Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Share capital 73 180 180 180 180

Reserves & surplus 469 1,297 1,556 1,991 2,591

Net worth 542 1,477 1,735 2,171 2,770

Total debt 407 360 360 385 410

Minority interest - - - - -

Def. tax liab. (net) (6) (7) (7) (7) (7)

Capital employed 943 1,830 2,088 2,549 3,173

Net fixed assets 343 488 698 910 1,083

Investments 66 493 293 143 143

- of which, Liquid 66 493 293 143 143

Net working capital 514 692 1,026 1,426 1,899

Cash and bank balance 19 158 71 70 49

Capital deployed 943 1,830 2,088 2,549 3,173

Net debt 315 (297) (10) 166 212

WC days 18.3 18.1 17.6 17.5 17.5

Book value (`/sh) 38.4 81.8 96.2 120.5 153.8Source: Company, Anand Rathi Research

Fig 4 Ratio analysis @ 289Year-end: Mar FY12 FY13 FY14e FY15e FY16e

P/E (x) 38.0 29.9 18.6 11.4 8.4

P/B (x) 7.5 3.5 3.0 2.4 1.9

EV/sales (x) 1.4 1.3 0.9 0.6 0.5

EV/EBITDA (x) 14.1 12.9 9.1 6.3 4.6

RoAE (%) 21.8 18.0 17.5 23.5 25.2

RoACE (%) 24.6 22.5 22.9 28.3 31.7

Dividend yield (%) 0.1 0.3 0.3 0.3 0.3Dividend payout (%) 5.3 10.3 6.4 3.9 2.9

RM to sales (%) 70.4 69.6 69.6 69.4 69.4

Ad spend to sales (%) 1.8 2.1 2.4 2.4 2.4

EBITDA growth (%) 47.0 41.2 41.9 44.6 36.4

EPS growth (%) 69.4 27.1 61.0 63.4 35.7

PAT margin (%) 3.8 4.5 4.8 5.6 5.7

Tax rate (%) 32.6 33.1 32.0 32.0 32.0

Staff cost to sales (%) 6.1 6.5 6.5 6.5 6.5Source: Company, Anand Rathi Research

Fig 6 Share of modern trade is lowest in India

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

USA

Taiwan

Malaysia

Thailand

Indonesia

China

India

Organised Unorganised

Source: Companies


8/10



Girish Solanki+9122 6626 6712

[email protected]

Key financials (YE Mar) FY09 FY10 FY11 FY12 FY13

Sales (`m) 3,211 3,133 3,571 3,775 3,600

Net profit (`m) 250 264 332 177 140

EPS (`) 13.0 13.7 17.2 9.2 7.2

Growth (%) (22.9) 5.5 25.9 (46.5) (21.5)

PE (x) 15.4 14.6 11.6 21.7 27.7

PBV (x) 1.9 1.7 1.5 1.4 1.3

RoE (%) 16.3 15.2 16.7 8.0 5.9

RoCE (%) 9.8 10.7 13.1 7.3 7.2

Dividend yield (%) 1.7 1.8 2.0 1.2 1.2

Net gearing (%) (0.1) 1.6 13.3 14.8 15.2


Textiles


India I Equities

19 March 2014

Zodiac Clothing

Key highlights

Sales break up. Brand-named closthing contributes 47% and international53% of Zodiac Clothings sales; India accounts for 46%, followed by North

America at 28%, Europe at 12%, the Middle East at 10% and the UK at 4%.

Robust distribution network. In retailing, the company has 1,500independent retailers (MBOs), which contribute 33% to sales; national chainscontribute 10% to sales and its own 109 stores 56%. It has an annual capex

outlay of`

150m for 30 stores.Own retail, design-driven business.The companyretails through 109 or itsown stores and one web store, whereas its design-driven business is forleading brands and retailers in the US, the UK, the EU, Latin America and theMiddle East.

De-risked business model. The company is vertically integrated fromdesign to retail, and is highly de-risked and powered by three outstandingmens clothing brands at the premium end of the segment: Zodiac, ZOD andZ3. These brands are supported by a strong distribution network and brandand product extensions. 75% of the produce is pre-sold (advance cheques)and 25% is for captive consumption. Sourcing of its raw materials is 50:50international and domestic.

Extensive brand basket. Its branded products comprise super-fine,lightweight suits, jackets and trousers in pure wool and 100% linen, jodhpurisin pure wool, premium shirts in long-staple Egyptian cotton, woven silk tiesand mens fine accessories such as cufflinks, belts, wallets, handkerchiefs andsocks and leather shoes. In the brand-named, the Zodiac brand brings in 75%of sales, with Zod and Z3 bringing in the rest. The company has launched

suits in the range of `22,000-29,000.

Poor economy mars prospects. The companyhas maintained its dividendrecord. Its financials have been hit chiefly by lower demand due to dulleconomic growth. Also, since it has been increasing the number of its outlets,higher interest costs are hurting its bottom line.


ZDC

Sensex

150160170180190200210220230

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Jan-14

Feb-14

Mar-14

Source: Bloomberg

Key data ZDC IN / ZCCL.BO

52-week high / low `227 / `147



Market cap `3.9bn / US$63m


Shareholding pattern (%) Dec13 Sep13 Jun13

Promoters 59.44 59.37 59.34


Free Float 40.56 40.63 40.66


- Domestic Institutions - - 0.01

- Public 31.42 31.54 31.59

Sensex: 21833

Nifty: 6517

Share Price: `196


9/10

19 March 2014 Zodiac Clothing Pre-Conference Note



Fig 1 Income statement ( m)Year-end: Mar FY09 FY10 FY11 FY12 FY13

Net sales 3,211 3,133 3,571 3,775 3,600

Sales growth (%) 13.3 (2.4) 14.0 5.7 (4.7)

- Op. expenses 2,978 2,851 3,189 3,495 3,290

EBIDTA 233 282 382 280 310

EBITDA margins (%) 7.3 9.0 10.7 7.4 8.6

- Interest 28 28 27 35 42


+ Other income 198 198 49 48 30

- Tax 95 125 86 43 61



PAT growth (%) (22.9) 5.5 25.9 (46.5) (21.1)

Adjusted PAT 250 264 264 177 140

FDEPS (`/sh) 13.0 13.7 17.2 9.2 7.2

CEPS (`/sh) 16.0 17.0 20.9 13.4 12.3

DPS (`/share) 2.8 3.0 3.3 2.0 2.0


Fig 3 Cash-flow statement ( m)Year-end: Mar FY09 FY10 FY11 FY12 FY13


+Non-cash Items 59 64 84 80 108

Cash profit 309 328 416 257 248

- Incr./(Decr.) in WC (50) 187 135 185 36

Operating cash-flow 359 141 281 72 212

-Capex 281 124 324 200 (57)

Free cash-f low 78 16 (44) (127) 269

-Dividend 64 69 75 48 50

+ Equity raised 7 21 25 50 22

+ Debt raised 21 52 109 120 (16)

- Investments (125) - 161 (68) 266

-Misc. items (0) (0) - - -

Net cash-flow 168 21 (144) 62 (42)

+Opening cash 103 271 292 148 209


Fig 5 Revenue and EBITDA margins

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY08

FY09

FY10

FY11

FY12

FY13

(`m)

0

2

4

6

8

10

12

14

(%)

Net sales OPM (RHS)

Source: Company

Fig 2 Balance sheet ( m)Year-end: Mar FY09 FY10 FY11 FY12 FY13

Share capital 84 84 128 193 194

Reserves & surplus 1,531 1,764 2,002 2,117 2,228

Shareholders fund 1,632 1,848 2,131 2,310 2,422

Debt 269 322 431 551 534

Deferred Tax Liab (net) - - - - -

Minority interests - - - - -


Fixed assets 946 1,007 1,259 1,377 1,221

Investments 102 102 263 196 462

Working capital 600 787 923 1,108 1,144

Cash 271 292 148 209 167


No. of shares (m) 8.4 8.4 12.8 19.3 19.4

Net Debt/Equity (%) (0.1) 1.6 13.3 14.8 15.2

W C turn (days) 71.1 80.8 87.4 98.2 114.2

Book Value (`/sh) 85 96 111 120 125Source: Company, Anand Rathi Research


P/E (x) 15.4 14.6 11.6 21.7 27.7

Cash P/E (x) 12.5 11.7 9.6 14.9 16.2

EV/EBITDA (x) 5.5 4.7 5.6 11.9 10.0

EV/Sales (x) 0.4 0.4 0.6 0.9 0.9

P/B (x) 1.9 1.7 1.5 1.4 1.3

RoAE (%) 16.3 15.2 16.7 8.0 5.9

RoACE (%) 9.8 10.7 13.1 7.3 7.2Dividend yield (%) 1.7 1.8 2.0 1.2 1.2

Dividend payout (%) 25.5 26.1 22.5 27.1 35.8

Debt/Equity (x) 0.2 0.2 0.2 0.2 0.2

Receivable days 37.2 39.1 34.7 32.8 36.5

Inventory days 59.3 63.4 65.9 71.9 76.4

Payable days 109.7 109.0 91.4 85.5 94.2

Working capital days 71.1 80.8 87.4 98.2 114.2

Fixed asset T/O (x) 3.9 3.2 3.2 2.9 2.8Source: Company, Anand Rathi Research

Fig 6 Sales, geographically

Middle East, 10%

India, 46%

Europe, 12%

UK, 4%

North America,

28%

Source: Company


10/10

Appendix

Analyst CertificationThe views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the researchanalyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound bystringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter SEBI) and the analysts compensation are completelydelinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report.

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors,

including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.Anand Rathi Ratings Definitions

Analysts ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (US$1bn) >15% 5-15%

53 consumer post conf 19 mar 2014

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